Broadband's Next Wave: Wireless?

May 16, 2001

On May 8, a small Nashua (N.H.) company called Spike Broadband Systems announced a $400 million contract to build a wireless broadband-access system for Denmark's second-largest mobile-phone company, Sonofon. The first deployment of a such a system for an entire country, Spike's effort will use a new technology called MMDS (multichannel multipoint distribution system) fixed wireless that allows phone companies to deliver services to the homes of individual users over rooftop antennas mounted anywhere within a 30-square-mile radius of a powerful cellular-transmission tower.

Spike CEO Jim Zucco claims he can do this at a fraction of the infrastructure cost required to build cable-modem or DSL networks. What's more, Spike's system will deliver local telephone service over the airwaves, allowing Sonofon to bridge the "last mile" for voice service. "This will be the largest installation of voice over IP [Internet protocol] in the world," says Zucco.

Baby Bells, DSL providers, and cable companies should take note of Zucco's doings in the land of Hans Christian Andersen. Why? It's no fairy tale: The MMDS systems that Spike and others are building could turn the broadband market upside down in coming years.

Big long-distance carriers such as Sprint (FON) and WorldCom (WCOM) love the idea because it could give them a fat data pipe into homes and small businesses with no interference from local phone or cable companies. And scaling up fixed-wireless MMDS networks that rely on a single transmitting tower to cover 25 square miles or more should prove four times less costly than rolling out cable- or phone-based broadband.

SCRAWNY STEPCHILD. These are big markets with huge potential payoffs. Telecom consultancy Strategis Group believes fixed-wireless broadband will take off in the next five years and projects subscriber numbers in the U.S. to soar from less than 100,000 today to 4.71 million by 2005. That growth should create an equipment market worth $10.4 billion and a revenue stream of $825 million within five years. "Cable and DSL are the clear early winners. Whether or not they can sustain that remains to be seen," says Strategis analyst Peter Jarich, who thinks fixed-wireless broadband will grab 15% to 20% of the U.S. broadband market by 2005.

Until now, wireless broadband has remained the scrawny stepchild of the fat-pipe club. Only six months ago, big mobile-phone carriers were salivating at the chance to roll out third-generation (3G) wireless networks for broadband-wireless coverage. But these souped-up versions of existing cell-phone systems have proved costly and lack a cohesive business plan. The result: Everyone from NTT DoCoMo (NTDMY) to Vodafone (VOD) have put off launch dates.

Meanwhile in the U.S., a rash of bankruptcies in April and May, 2001, have cast a pall over the numerous competitive local exchange carriers (CLECs) trying to build wireless-broadband business around a technology called local multipoint distribution System (LMDS). Costly to install, LMDS systems involve blanketing rooftops of big cities with high-powered antennas that blast out data at 155 megabits per second.

But rain and fog can block data signals, and getting a clean line of site from transmitters has proved problematic in cities. Plus, the services, targeted at businesses paying $1,000 a month or more for high-capacity T1 lines, were starting up in the strongholds of the Baby Bells. "They failed because they sought to offer services that were similar to their competitors', right in the teeth of where wireline companies could most easily defend their customers," says Zucco.

TISSUE-BOX TRANSMITTERS. Where 3G and CLECs have floundered, MMDS could triumph. For one thing, there's no need for numerous rooftop installations to cover a large area. MMDS can blanket a midsize city with a single tower controlling both upstream and downstream data flows. "It's a couple million bucks to build out a city. That's very, very cheap," says Evan Conway, Sprint Broadband's vice-president for marketing.

According to WorldCom Vice-President Jonathan Mapes, covering a square-mile area with MMDS costs $2,500. That compares to $10,000 for DSL coverage or $8,000 for cable. And due to its centralized architecture, MMDS could prove easier to upgrade than the other systems.

Furthermore, MMDS requires minimal dealings with local phone and cable companies, which have not proven particularly eager to open their networks to outsiders. "It's very difficult to work with the local companies, and we have felt disadvantaged while working with them," says Sprint's Conway. Best of all, the wide coverage capability of MMDS allows providers to target areas that have no broadband access, be they small cities or bypassed neighborhoods in big metro areas.

While the first generation of MMDS equipment largely disappointed telcos, emerging technologies could help it lift off now. Router giant Cisco (CSCO) is set to unveil a new type of MMDS transmitter in late 2001 or early 2002 that should allow far better coverage by routing signals around obstacles. And Nokia (NOK) and Wave Wireless (SPWC) have just rolled out new transmitter systems that appear tailor-made for MMDS. These systems could be used to create so-called mesh networks -- a web of broadband transmitters that link together to create extended coverage at speeds of 6 to 12 megabytes-per-second. One of these tissue-box-size transmitters could deliver signals over a one- to two-square-mile area.

INTERFERENCE AHEAD? That would allow an MMDS carrier to build a single tower that then passes off its signal to a mesh network to provide superior coverage in areas where geographical or physical obstructions block signals. And at $1,500 per transmitter, Internet service providers could see a profit on their investment in just six months, says Wave Wireless Marketing Vice-President Patrick Pacifico. "For every new node they add, they are extending their network. Any customer that can see one of the transmitters can potentially get on the network," he adds.

Still, obstacles remain for MMDS. The technology's two biggest U.S. proponents, Sprint and WorldCom, have been hamstrung by slumping stock prices and large debt loads, due to the telecom implosion. That could slow their MMDS roll-outs, although Sprint appears to be moving forward aggressively with plans to launch in dozens of markets where it has licensed MMDS spectrum in the next year. Another problem could be interference from educational institutions, which were granted spectrum very close to MMDS' 2- to 3-gigahertz range for their own use and might raise objections with government regulators.

Some broadband watchers, such as Brad Baldwin of market-researcher IDC, say the cable and DSL guys have such a big lead that fixed wireless of any type faces trouble carving out a niche. Baldwin believes that fixed wireless will first catch on in foreign markets, where cable and phone infrastructures remain primitive and landline broadband penetration low.

MMDS service also requires installing an antenna and some additional wiring into the home, according to Hunter Middleton, group product manager for consumer DSL services at Covad Communications (COVD). Middleton points out that 40% of all DSL installs require no service call. Finally, many question whether MMDS can accommodate large numbers of users.

"LULL BEFORE THE STORM." Nevertheless, the current broadband leaders appear vulnerable. Big chunks of the country remain out of the range of either cable or DSL. Service complaints about DSL in particular are legion -- according to Strategis' Jarich, almost one-third of all DSL installations require multiple visits. And with only 6 million subscribers nationwide, penetration leaves plenty to be desired.

Despite these shortcomings, both DSL and cable-broadband companies have just boosted prices by 20%. That could prove a market opportunity for Sprint and WorldCom, which combined have licenses for most of the big metro markets, including Los Angeles, San Francisco, and New York City. "We are in a lull before the storm. We really believe the next generation of fixed wireless will be a huge improvement over the existing stuff," says Sprint's Conway. When the MMDS storm hits, the broadband landscape could look a lot different. By Alex Salkever in New York